Pharmaceuticals and South Africa III - The Courts

Introduction

In the preceding Briefs the state of the manufacturing and distribution of pharmaceuticals was discussed. There are concerns regarding barriers to entry which directly affect the distribution of pharmaceuticals to those that need them most. As an example of what courts can do, this brief examines a particular case: Independent Community Pharmacy Association v Minister of Health and Others.

The issues before the Court arose from the application of the relevant Act and regulations as it relates to the respondents’ organisational structure.

What follows is a glimpse into the inner workings of the industry, in one of the larger participants. The content of the judgment confirms concerns raised in the first two briefs. It goes a step further and begins a process that may make the market more competitive and arrest the financial downfall of “the little guy”.

David and Clicks

What did the Independent Community Pharmacy Association (“ICPA”) want from the Department of Health and why did the Department deny it?

In May 2016 ICPA lodged a complaint with the Department of Health alleging that the industry participants were in contravention of the Pharmacy Act.^[1] The provisions in question dealt with the ownership of community pharmacies^[2], stating that “a condition of ownership that a person who owns, or has a beneficial interest in, a community pharmacy is prohibited from being the owner or the holder of any direct or indirect beneficial interest in a manufacturing pharmacy”.^[3]

The complaint was rejected on 19 January 2017 and ICPA lodged an appeal on 17 February 2017, which was subsequently heard by the Department, who dismissed it on 15 January 2018.^[4] Having no other option ICPA approached the Western Cape High Court asking for an order reviewing and setting aside the Department’s decisions.^[5]

What were the central issues in the High Court case?

ICPA asked the Court to review and set aside both the decision of the Department on 19 January 2017 as well as the decision of the Chairperson's appeal committee on 15 January 2018.[6] Furthermore, the applicant sought a declaration that the fourth to eighth respondents (see below “Who is Clicks”) have contravened the Act and regulations and that the issue of the sanction to be imposed be remitted to the Chairperson, alternatively to the Department , for consideration, or in the alternative, that “section 22A of the Act be declared to be contrary to sections l(c) and 27, of the Constitution and accordingly invalid”.[7]

The respondents in the matter, totalling eight in number, included the Minister of Health, the Chairperson of the Appeal Committee, the Director-General of the Department of Health and Clicks in all its various forms. The Court took the time to inform all interested parties as to the nature of Clicks and the remaining respondents:

Who is Clicks?

The Court described the situation as follows:

[7] The Clicks Group Limited ("Clicks Group"), the fourth respondent, is the holding company at the top of the corporate structure.

[8] Clicks Group is a 100% shareholder of New Clicks South Africa (Pty) Ltd ("New Clicks"), the fifth respondent.

[9] New Clicks owns all the shares of both Unicorn Pharmaceuticals (Pty) Ltd (Unicorn), the sixth respondent, and Clicks Investments (Pty) Ltd ("Investments"), the seventh respondent.

[10] Investments holds all the shares of Clicks Retailers (Pty) Ltd (" Retailers "), the eighth respondent.

[11] Unicom owns a manufacturing pharmacy while Retailers owns and operates approximately 470 community pharmacies, with 1830 pharmacists, 1430 pharmacist assistants and 315 nursing practitioners.

Were any new principles established by the judgment and, if so, what were they?

The Court considered the submissions by the parties and in particular made reference to the Decision of the Appeal Committee recordings. The Court highlighted that the “corporate structure of the Clicks Group of companies… contravenes Licencing regulation 6 and in a way manages to circumvent the very same mischief that the licencing regulation seeks to address and consequently prevents"[8]. Furthermore, it was stated that “Clicks Group and New Clicks have a beneficial interest in both Retailers and Unicorn because Retailers owns and operates community pharmacies and Unicorn on the other hand is a manufacturing pharmacy."[9]

What was the High Court order?

The Court ultimately had to decide on whether the structure of the Clicks entities offended the provisions. The Court found that the finding by the Appeal Committee, in that the corporate structure of the Clicks Entities did not offend against the regulation, was incorrect[10], and that these previous decisions were reviewed and set aside.^[11]

The Court held that Clicks indeed had a beneficial interest as a result of its shareholding in the various entities:

“3.1 Seventh Respondent has a beneficial interest in community pharmacies through its 100% shareholding of Eighth Respondent, which owns community pharmacies, and the shareholder of Seventh Respondent, being the Fifth Respondent, has a direct or indirect beneficial interest in the form of shareholding in Sixth Respondent, which owns a manufacturing pharmacy.

3.2 Fifth Respondent has a beneficial interest in community pharmacies through its 100% shareholding in Seventh Respondent which, in tum, has a 100% shareholding in Eighth Respondent, which owns community pharmacies, and its direct or indirect beneficial interest in the form of shareholding in Sixth Respondent, a manufacturing pharmacy.”[12]

Conclusion

The HSF’s findings and the Court’s decision make it clear that there are not only vested interests in the sector but that these are entrenched through all manner of structures. What is of further concern is that these interests are ruthlessly protected at the expense of independent entities who find themselves at the mercy of larger entities.

However, it is reassuring that the courts have intervened and brought with them the willingness to take a considered look into the livelihoods of some twenty thousand supportive health care personnel spread across two and a half thousand pharmacies.

Chris Pieters
Legal Researcher
chris@hsf.org.za

^[1] Independent Community Pharmacy Association v Minister of Health and Others (11647/18) [2020] ZAWCHC 47 (3 June 2020) at paragraph 2 http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZAWCHC/2020/47.html&query=ICPA